Supplemental Coverage Option (SCO) for Winter Wheat

  
 

August 8, 2014 
 

Supplemental Coverage Option (SCO) for Winter Wheat
Jody Campiche, Assistant Professor and Extension Economist

The new Supplemental Coverage Option (SCO), available through the federal crop insurance
program, will be available for corn, cotton, grain sorghum, rice, soybeans, spring barley, spring
wheat, and winter wheat in selected counties for the 2015 crop year. The first enrollment
deadline is September 30, 2014 for winter wheat. Producers will have the option to purchase
SCO through a crop insurance agent along with their underlying individual insurance policy.
SCO is designed to cover county-wide losses and complement a producers’ individual insurance
policy which is a new concept as producers have not previously been allowed to stack insurance
policies for the same crop. To be eligible to purchase SCO, producers must also have an
individual policy for the crop enrolled in SCO. The individual policy can be a Revenue
Protection (RP) policy, a Revenue Protection with Harvest Price Exclusion (RP-HPE) policy, or
a Yield Protection (YP) policy. SCO coverage is tied to the individual yield or revenue
insurance policy. So a producer with an individual Yield Protection (YP) policy would only
have the option to purchase an SCO yield protection policy (as opposed to a revenue protection
policy). SCO will cover losses from 86% minus the coverage level of the producer’s individual
policy. For example, if a producer has a 70% RP policy, the SCO coverage level would be 16%
(86% - 70%). As shown in the figure below, SCO is only offered in certain counties/states for
2015 winter wheat and spring wheat crops.

Source: http://www.rma.usda.gov/news/currentissues/farmbill/SCOwheatfilingdates.pdf

For Oklahoma, the list of counties with 2015 winter wheat coverage and the SCO expected
county yields are shown in the table below.

Alfalfa SCO Expected County Yield 27.2
Beaver 35.3 Jackson 30.6
Beckham 27.3 Kay 30.2
Blaine 21.7 Kingfisher 26.7
Caddo 27.5 Kiowa 31.3
Canadian 30.5 Logan 30.3
Cimarron 30.9 Major 31.7
Comanche 20.7 McClain 25.4
Cotton 23.7 Noble 33.2
Custer 24.0 Oklahoma 33.1
Dewey 28.5 Ottawa 26.5
Ellis 26.5 Payne 24.5
Garfield 21.5 Roger Mills 33.5
Garvin 33.2 Texas 26.2
Grady 31.9 Tillman 31.7
Grant 28.1 Wagoner 27.6
Greer 32.5 Washita 31.8
Harmon 24.2 Woods 26.5
Harper 26.6 Woodward
25.4

Enrollment in the new Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC)
programs through the Farm Service Agency (FSA) are now tied to enrollment in the SCO crop
insurance program. The USDA Risk Management Agency (RMA) just released rules/guidelines
for the SCO program but the Farm Service Agency (FSA) has not released rules/guidelines for
ARC and PLC. Therefore, the information provided in this newsletter is based on my
current understanding of the interaction between these programs and could change once
all final program details are released.

Producers who elect to participate in ARC are not eligible for SCO for the crop/farm number
participating in ARC. Enrollment in ARC or PLC occurs on an FSA crop/farm number basis.
Producers cannot receive benefits for both ARC and SCO on the same acreage/farm number of a
crop. SCO is elected on crop/county basis so producers will need to report which acreage/farm
numbers are enrolled in SCO and which acreage/farm numbers are enrolled in ARC.

The ARC/PLC decision is a one-time decision that will remain in effect for the life of the farm
bill. Producers will likely enroll in ARC/PLC in late 2014 or early 2015. The initial ARC/PLC
enrollment is for the 2014 crop year (although it may not take place until 2015). SCO is not
available for the 2014 crop year. SCO is available for certain crops/counties for the 2015-2018
crop years. The SCO election will take place each crop year when a producer enrolls in an
individual RP, RP-HPE, or YP policy. A producer who enrolls a crop/farm number in ARC will
not have the option to purchase SCO for that crop/farm number for any of the 2015-2018 crop

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years. The deadline to enroll in SCO for winter wheat for the 2015 crop year is September 30,
2014.

For ARC and PLC, producers enroll base acres (with the exception of generic or cotton base
acreage) but producers enroll planted acres in SCO. So, a producer could enroll base acreage of
one crop in ARC on a particular farm number but plant a different crop on the same farm number
and enroll that crop in SCO.

For example, assume Producer Jones has 100 base acres of grain sorghum on FSA farm
number 1111 and 100 base acres of wheat on FSA farm number 2222:

Scenario 1: Producer Jones plants 100 acres of wheat on farm 1111 and 100 acres of wheat
on farm 2222 during the 2015 crop year. Here are some available options:

1) Farm 1111
a. Enroll the grain sorghum base acreage in PLC, option to purchase SCO on
planted wheat acres for the 2015 crop year (and through 2018)
b. Enroll the grain sorghum base acreage in ARC, option to purchase SCO on
planted wheat acres for the 2015 crop year (and through 2018)

2) Farm 2222
a. Enroll the wheat base acreage in PLC, option to purchase SCO on planted
wheat acres for the 2015 crop year (and through 2018)
b. Enroll the wheat base acreage in ARC, CANNOT purchase SCO on planted
wheat acres in any year

Scenario 2: Producer Jones plants 100 acres of grain sorghum on farm 1111, 50 acres of
wheat on farm 2222, and 50 acres of canola on farm 2222. Here are some available
options:

1) Farm 1111
a. Enroll the grain sorghum base acreage in PLC, option to purchase SCO on
planted grain sorghum acres for the 2015 crop year (and through 2018)
b. Enroll the grain sorghum base acreage in ARC, CANNOT purchase SCO on
planted grain sorghum acres for the 2015 crop year (and through 2018)

2) Farm 2222
a. Enroll the wheat base acreage in PLC, option to purchase SCO on planted
wheat acres, CANNOT purchase SCO on the planted canola acres for the
2015 crop year since SCO is not available for canola in 2015 (may have the
option to purchase SCO for canola in some counties in 2016-2018, but this is
uncertain)
b. Enroll the wheat base acreage in ARC, CANNOT purchase SCO on the
planted wheat acres in any year, CANNOT purchase SCO on the planted
canola acres for the 2015 crop year since SCO is not available for canola in
2015 (may have the option to purchase SCO for canola in certain counties in
2016-2018)

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Since producers will likely not be able to enroll in ARC or PLC prior to the Sept. 30 deadline for
SCO coverage on 2015 winter wheat, SCO coverage can be withdrawn on any farm where
producers intend to elect ARC for winter wheat by the earlier of their acreage reporting date or
Dec. 15, without penalty. This allows producers additional time to make an informed decision
between ARC or PLC for winter wheat. If producers withdraw SCO coverage for a farm by the
earlier of their acreage reporting date or Dec. 15, they will not be charged a crop insurance
premium. In order to withdraw coverage without penalty, producers must notify their crop
insurance agent of their intended election for ARC by the earlier of their winter wheat acreage
reporting date or Dec. 15. The option to withdraw SCO coverage will only be allowed for the
2015 crop year for fall planted wheat.

A producer who chooses to purchase an SCO policy has several options. The producer could
keep the previous coverage level on the individual RP, RP-HPE, or YP policy and add SCO
coverage. As an example, if a producer has a 70% RP policy, the producer could buy 16% SCO
coverage (86%-70%). The producer could also decide to lower the coverage level on the
individual policy and add more SCO coverage. For example, the producer could lower RP
coverage to 60% and buy 26% SCO coverage (86%-60%). However, it is important to note that
if a producer decides to withdraw from SCO later this year (due to enrollment in ARC), the
producer would not be able to change the coverage level of the underlying policy for the 2015
crop year. For example, assume a producer usually purchases a 70% RP policy on wheat. If the
producer decides to lower RP coverage to 60% and purchase 26% SCO coverage (86%-60%) for
the 2015 crop year, but then decides to withdraw from SCO, the producer would not be able to
change the 60% RP coverage for the 2015 crop year.

Due to the complexity of decisions related to ARC, PLC, SCO, and individual insurance policies,
producers should consider several factors. Some of the key points to think about are:

1) SCO covers losses at the county-level while an RP, RP-HPE, or YP policy covers losses
at the farm level. If a farm-level loss occurs but a county-level loss does not occur, SCO
would not pay an indemnity. If a farm-level loss does not occur but a county-level loss
does occur, SCO would pay an indemnity.

2) Does the producer currently have enterprise units on the underlying individual crop
insurance policy? If so, the producer may want to examine the marginal costs of
increased coverage on the underlying policy as opposed to adding SCO coverage.
a. Enterprise units would cover losses closer to the individual farm-level than
county-level SCO coverage (may cost less than SCO depending on coverage
level).

3) Is SCO offered for the crop/county in 2015 and/or later years?
a. RMA may add additional crops/counties for the 2016 crop year.

4) What level of coverage does the producer currently have on the individual policy?
a. SCO only provides coverage up to 86% so a producer with an 85% RP policy
may not want SCO coverage (although the producer could lower the coverage on
the individual policy and buy more SCO coverage).

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5) What is the cost of the underlying individual crop insurance policy?
a. Can the producer obtain higher levels of coverage on the individual policy at
affordable rates? If not, SCO could provide a higher level of coverage at a more
affordable rate. The SCO premium subsidy is 65% compared to a 59% subsidy for
a 70% RP policy (the subsidy varies for other levels of coverage on an individual
policy).

6) Does the producer want to enroll in ARC for a particular crop/farm number? If so, SCO
is not an option for the same crop/farm number.

7) Does the producer want to have the option to purchase SCO for a crop/farm number in a
later year (after the 2015 crop year)? If so, the crop/farm number cannot be enrolled in
ARC.

8) Does the producer want to have more time to think about SCO for the 2015 winter wheat
crop? If so, the producer may want to obtain SCO coverage for winter wheat prior to the
Sept. 30 deadline and withdraw later if enrolling in ARC.

For additional information:
SCO Endorsement: http://www.rma.usda.gov/policies/2015/15sco.pdf
SCO Underwriting Standards Handbook:
http://www.rma.usda.gov/handbooks/18000/2015/15_18180.pdf

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